VALUE INVESTING
Value Investing For Beginners

By Stephen Bland (TMFPyad)
February 7, 2003

One of the difficulties that may face the newcomer to share investing in general and value in particular, or any dedicated strategy I guess, is the sheer volume of information available. There is now a substantial body of opinion and data around, the present situation having been given a large boost by the advent of the Internet a few years ago. The Motley Fool itself is part of this addition to the available sources.

When I started decades ago long before personal computers, all that existed were the papers and the Investors Chronicle. If I found a likely value share in the IC, to research further I would obtain the latest annual and interim accounts from the company itself, by post, and meanwhile look it up in a special financial card index system available in certain business libraries. This had one card for each company giving a load of valuable fundamental data, somewhat similar to the present day REFS. I'd then look it up on another card index, a cuttings service where you could see all the recent press comment.

My point is that this was all a lonely pursuit. There were no Internet bulletin boards where you could find out what other people might be thinking and therefore you had to act in a vacuum. There was gossip of course, common in the City where I worked for a time, but that would be confined to a very small number of people and in any case I soon discovered that it was frequently worthless and mostly not about value anyway.

These days it is much easier to obtain information on a company for those online. Sometimes the accounts will be available on the company's website and, in limited form, on financial news sites. The latter will also feature any announcements that may be of import to the potential investor. There may in addition be occasional worthwhile comment on bulletin boards though I am pretty dubious of this and it can be hard to determine the valuable from the mere scuttlebutt. Most will fall into the latter category.

When the Internet came along, due to the novelty of it, I found myself looking at every message board and article I could locate on a potential play or share I already owned. There were a lot more financial sites around at one time, a lot of them having since closed down. This was after years of acting in a solitary way and it was quite heady to discover all this stuff out there. Then I soon discovered there was far too much, particularly of the comment. The vast majority of it was simply an extension of the old City gossip but worse because often the commentators were far less knowledgeable about the market.

Also there was, and is, an enormous volume of general macro comment on the economy and the spurious reasons why the market or a share was rising or falling, in which I was particularly disinterested. I learned long ago that there are usually no particular reasons to explain market movements other then the capricious cycles of human nature. But I find it interesting to note that the compulsion to invent reasons continues strongly with the Internet and is stronger than ever. Now instead of just the press having to trot out reasons, everyone can do so but it is all just as meaningless.

Having gone through the phase of paying too much attention to Internet comment, I then had to relearn vacuuming, running the hoover with the financial irrelevancies attachment over myself. After the novelty of looking at all available web stuff on my shares I found that nearly all of it, though fascinating at first, did not aid successful share trades. This was especially true for my particular strategy which I have always advocated be done in isolation. In fact, a lack of isolation could harm it. Obviously I can and do make mistakes but I want them to be my mistakes and thus I had to relearn the art of ignoring others. I was probably swayed a lot less by all the comment out there than a beginner. However, at one stage I did find that I was probably paying more attention to it than that with which I was comfortable.

A complete value beginner can't ignore everything of course and I would be the first to suggest that, for example, some books on the subject are extremely useful. But once you think you have the hang of it, and the fundamental figures are not that difficult to appreciate, it is the contrarian psychology that is probably the hardest part of it. Then you may find it pays to actually cut down your information requirements to the absolute minimum required to make buy or sell decisions. I know that works for me.